Situation analysis: where your company really stands today

What is a situation analysis?

The systematic answer to three questions: where does your company stand today, how did you get there, and where could things go from here. It comes at the start of any strategy work, because without it every goal you set remains an assertion.

Willie Pietersen puts the sequence into a formula borrowed from the military: reconnaissance precedes the operation. Richard Rumelt describes the same step as diagnosis, meaning an understanding of what is actually going on here.

In the StrategyFrame®, this step is called ANALYZE and it's the second of eight. It's also the longest and the one most often cut short, because it produces nothing you can show off. Cut it and you save four weeks, then pay for them later in a workshop where people argue about numbers instead of direction.

The difference between analysis and diagnosis determines the value you get. An analysis lists what is. A diagnosis names causes and consequences and separates what matters from what doesn't. A report that shows twenty metrics and explains none of them is a list of symptoms.

Which modules are part of it?

The analysis follows the force fields acting on your company. That gives you six modules, and each one answers its own key question.

Every module gets its own key questions, its own data and, at the end, one to three sentences that capture the result. Those sentences are the real output of this step. Everything beneath them, meaning tables, analyses and interview notes, is material and belongs in the appendix.

The order is no accident. It starts on the outside with customers and works its way inward. Start the other way around and you're judging your own numbers without the yardstick they depend on.

Why aren't numbers alone enough?

You can't do without numbers. A substantial part of the result is quantitative, because performance metrics show what actually happened. They just don't explain it.

Once the screen fills up with columns of figures, the bigger picture gets lost fast. That's why the second path belongs to it: conversations. Exploratory interviews with executives, owners, employees, customers and non-customers surface assumptions and sentiments that appear in no spreadsheet.

Together, the two add up to more than the sum of their parts. The conversations explain the numbers. And across several conversations, patterns emerge that the data alone can't reveal.

A real-world example of how this typically plays out: the analysis shows that the margin in one segment has been falling for three years. The number doesn't say why. Four interviews later it's clear that two large customers have split their order volumes to push prices down, and that sales has known about it for two years.

How do you start the analysis?

With a kick-off. It sets the tone for everything that follows. Put together a team that can take different perspectives and disagree on substance. Don't play your cards close to your chest: clarify viewpoints, explain the approach and explicitly invite critical debate.

The structured dialogue works well for the conversations in the kick-off. A key question opens the topic, and the answer becomes the starting point for the next question. "Why do you see it that way?" and "What assumptions are built into your answer?" are the two most useful follow-ups, and you repeat them until a shared insight emerges.

Experience shows that the size of the core team is decisive. Five to six people, including whoever owns the process, works well: big enough for different points of view, small enough to stay able to act. Who sits on the team often depends on culture and internal politics as much as on expertise. Factoring that in openly spares you surprises later.

Which rules make the difference?

Five, and every one of them sounds unremarkable until it's missing.

• Diagnosis instead of a list of symptoms. This is about the causes of results and their consequences. Separate what matters from what doesn't.
• Trajectories instead of snapshots. A trend tells a story; a snapshot doesn't. Look for developments over several years.
• Keep it simple. Don't overcomplicate your findings. Simplicity is hard work, not a shortcut.
• No buzzwords. Write so that someone outside the company understands it. Speak your customers' language, not your in-house dialect.
• Consensus is the wrong goal. The best idea should win, not the lowest common denominator.

The second rule deserves an addition, because it pays off most in mid-sized companies. For every key metric, look at five years instead of a year-over-year comparison. Five years show whether a development was an outlier or a direction, and they answer the question that comes up in every discussion sooner or later: is this new?

The last rule is the most uncomfortable one. A leadership team that reaches agreement quickly during the analysis phase has usually asked its questions too gently.

How long does the situation analysis take?

Four to eight weeks is the usual range. Where the focus is on interviews, it quickly becomes six to eight, because scheduling, conducting and evaluating them together take more time than the pure talking time suggests.

The effort is distributed unevenly. Collecting the numbers is doable in a week if controlling plays along. The conversations take six to eight weeks, because meetings with customers and executives don't happen on short notice. Start both in parallel and you lose no time; do them one after the other and you double it.

You can move faster with more people or with outside support. What you can't do is skip the analysis and still expect a decision that holds up.

Plan the evaluation separately from the data collection. The usual mistake is to gather data until the last day and push the interpretation into the workshop. There's no time for it there, and a leadership team handed raw data will debate data quality instead of direction.

What you have at the end of this step is not a slide deck but a set of clearly stated findings for each module. Each one is a sentence that someone understands without the appendix. These sentences are the material the next step works with.